EVgo Inc. Q3 FY2023 Earnings Call

Thank you for standing by. My name is Ian, and I will be your conference operator today. At this time, I would like to welcome everyone to the EVgo Inc. Q3 2023 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question-and-answer session. I would now like to turn the call over to Heather Davis, Vice President of Investor Relations. You may begin your conference.

Good morning, and welcome to EVgo's Third Quarter 2023 Earnings Call. My name is Heather Davis, and I am the Vice President of Investor Relations at EVgo. Joining me on today's call are Cathy Zoi, EVgo's Chief Executive Officer; along with our incoming CEO, Badar Khan; and Olga Shevorenkova, EVgo's Chief Financial Officer. Today, we will be discussing EVgo's Third Quarter 2023 financial results and outlook for the remainder of 2023, followed by a Q&A session. Today's call is being webcast and can be accessed on the investors section of our website at investors.evgo.com. The call will be archived and available there, along with the company's earnings release and investor presentation after the conclusion of this call. During the call, management will be making forward-looking statements that are subject to risks and uncertainties, including expectations about future performance. Factors that could cause actual results to differ materially from our expectations are detailed in our SEC filings, including in the Risk Factors section of our most recent annual report on Form 10-K and quarterly reports on Form 10-Q. The company's SEC filings are available on the Investors section of our website. These forward-looking statements apply as of today, and we undertake no obligation to update these statements after the call. Also, please note that we will be referring to certain non-GAAP financial measures on this call. Information about these non-GAAP measures, including a reconciliation to the corresponding GAAP measure can be found in the earnings materials available on the Investors section of the website. With that, I'll turn the call over to Cathy Zoi, EVgo CEO.

Good morning, everyone, and thank you for joining today. I'm excited to share our phenomenal results for the quarter and introduce you to Badar Khan, EVgo's incoming CEO. The EVgo growth engine is indeed humming. Revenues, throughput, and utilization are trending superbly. It's clear that being a leading owner and operator of well-located charging infrastructure to service an increasingly hungry fleet of electric vehicles is a winning strategy. As has been the case quarter-over-quarter, EVgo continues to deliver on our commitments to our customers, partners, and shareholders, and we are pleased with our operational execution and the ability to raise our full-year revenue guidance. The electricity dispensed on EVgo's network rapidly accelerated in the third quarter to 37 gigawatt hours, growing over 200% versus last year and nearly 50% sequentially. In addition to the throughput growth, our retail network and extend business helped drive revenues to over $35 million in the quarter, growing over 200% versus last year's third quarter. Our adjusted EBITDA loss of $14 million narrowed significantly from the prior year as we are achieving operational leverage and remain focused on cost efficiencies. 2023 station development remains strong and on course. We've added over 240 stalls to the network in the third quarter, including 40 extend stalls, bringing us to over 3,400 stalls in operation or under construction. This includes the exciting milestone of operationalizing the first EVgo extend site at Pilot Flying J locations. With roughly 2,700 operational stalls in over 35 states and 65 metropolitan markets, EVgo was one of the largest fast charging providers in the United States. Our station development continues across the country with some of the fastest-growing markets in Texas, Florida, Michigan, and Arizona. About half of the energy delivered this quarter was outside of California. EVgo's exceptional throughput this quarter has translated to over 15% utilization across the entire network in September 2023. In fact, 45% or nearly half of our stalls were over 15% utilization, up from just 30% in June. And in September, a full 30% of stalls or over 20% utilization, a threshold that truly makes my spirit soar. These strong utilization trends validate EVgo's business thesis leveraged to EV adoption, our rigorous underwriting designed to achieve double-digit returns, and our sophisticated site selection and network planning algorithms. With current utilization at our top stalls already exceeding base case utilization assumptions in our financial modeling, we believe the go-forward picture on network profitability is stronger than ever. While I'm not surprised to be able to report such strong results to you during my last quarterly earnings call as CEO of EVgo, I'm certainly thrilled. It's been a great honor and privilege to lead the team in building the foundational business at EVgo and adding elements of that foundation to create a flywheel and to now witness that flywheel start to spin. We've created a robust business model leveraged to EV adoption with 3 million EVs on the road today and an expected 5 million to 6 million by the end of 2024. And further projections of 35 million to 38 million electric vehicles in operation in the U.S. by 2030. EVgo's Blue Ribbon partnerships across the EV ecosystem strengthened our financial performance while enabling others in the EV ecosystem, OEMs, site hosts, utilities, and government agencies to meet their goals. GM, Honda, Toyota, Whole Foods, Safeway, Target, Lowe's, Uber, Lyft, Amazon, dozens of utilities, and government agencies to name just a few of our partners. EVgo's focus on unit economics and financial discipline and our network planning is demonstrating proven financial returns. And our white label charging business, EVgo eXtend, has created shareholder value in an optimized risk-return manner, broadening network reach and bolstering revenues and margins without EVgo needing to invest CapEx in lower utilization settings. EVgo's technology leadership in this new and rapidly growing sector deepens and widens our competitive moat with a litany of industry firsts in the public fast charging sphere, including power sharing, AutoCharge Plus, EVgo reservations, integrated Tesla connectors, proprietary software products like EVgo Optima and EVgo Inside and of course, the EVgo Innovation Lab. We believe EVgo's engineering team is not only a step ahead of other public charging networks, we are working collaboratively with automakers, equipment manufacturers, and policymakers to craft the holistic infrastructure architecture designed to scale to meet the needs of hundreds of diverse models of EVs coming to the market over the next few years. Now let's talk about EVgo's focus on enhancing the customer experience and the demonstrable progress we've made in our own chargers by working with OEMs and improving driver education. First, on chargers, we continued to run the ground and remedy issues associated with charging equipment, holding our suppliers to exacting standards on both hardware and software. We collaborate closely with OEMs to ensure their EVs can work seamlessly with EVgo chargers. And we're continuing to invest in driver education as the number of EVs on the road skyrockets and use of fast chargers grows with it. Our charge talks and renewed video series and related blog posts are helping new and experienced EV drivers adapt to the ever-changing fast-charging ecosystem. One of EVgo's success benchmarks is what we refer to as One & Done charging. This is a metric we track showing the percentage of time customers get what they came for: a successful charge at EVgo on their first attempt. We started 2023 with One & Done at 85% and have now reached 91% with the aim of achieving 95% at year-end, and we will continue driving towards a One & Done rate of 100%. Our investments in customer experience are paying off with rising Plug scores and J.D. Power results. In the Q3 2023 J.D. Power Overall Satisfaction Index, EVgo improved 4 percentage points from Q1 and saw strong gains on key customer experience metrics such as speed of charging up 12% and ease of charging up 6%. Turning to the EVgo supply chain. Along with most of the U.S. EV industry players, EVgo has committed to support NACS connectors. We've qualified a couple of potential suppliers for NACS charging cables including liquid cool cables, which are required for the high-powered 350-kilowatt chargers that are EVgo's standard deployment. EVgo anticipates rolling out NACS connector cables in 2024 at a cost comparable to a CCS cable today and with a minimal cost to retrofit to existing stations. We expect to be ready with NACS cables for our chargers well before the automakers that are transitioning to NACS have their NACS EVs on the road. With respect to CapEx trends for fast chargers, we've been able to negotiate lower equipment pricing. However, there are several factors currently contributing to CapEx being at the top end of our previously mentioned range. First, Build America, Buy America or BABA. In order to be eligible for NEVI funding, the IRI stipulates that chargers must meet BABA standards. While EVgo fully supports building domestic manufacturing capabilities for the EV charging industry, the BABA-compliance chargers cost more at present. Second, prevailing wage requirements for grant-funded projects under NEVI or 30c add about 30% to the labor portion of CapEx. And finally, utilities are needing to upgrade local power distribution networks to accommodate more and more fast chargers, and they are passing on many of these costs to charging companies such as EVgo. To help counter the current cost headwinds in our industry, EVgo is pursuing innovation on many fronts to reduce the CapEx required to build the station. For example, we recently announced a prefabricated charging deployment model on a skid that's expected to reduce installation timelines by 50% and reduce capital equipment cost by 15% at eligible sites. This scalable design is being deployed at several locations in the next few months and will be honed for more widespread application in stations designed and mobilized later in 2024. On partnerships, I'm pleased to report that the first EVgo eXtend sites with the pilot company and GM are now operational. Customer feedback has been terrific, with plug scores for these new highway corridor stations rivalling the best in the business. The PFJ station deployment program is on track, with agility and innovation being key ingredients in our success so far. Emblematic of this, we announced last quarter that EVgo received the first 350-kilowatt BABA-compliant chargers in the country. Last quarter, EVgo added another blue-ribbon OEM partner with the signing of an agreement with Honda. Future Honda and ACURA EV models will be eligible for up to a $750 charging credit on EVgo's public network. Honda will embed EVgo inside our proprietary software into their navigation system to help enable their drivers to locate EV charging stations nearest to them. We also signed a deal with automaker Stellantis, who will leverage EVgo inside as their API to integrate into their apps, to aid their drivers in finding a fast charger, due availability, and starting a charge. EVgo extended our agreement with Toyota, providing Toyota EV drivers a year of free charging at EVgo for model year 2024. EVgo's rideshare partners, led by Uber and Lyft, delivered significant growth this quarter as they move aggressively towards their goals of electrifying their fleets. Throughput from fleets on EVgo's network is 5x higher in the third quarter compared to last year's third quarter. EVgo expects to open our second depot site for an autonomous vehicle company in January 2024. These two sites have stall counts between 26 and 30, more than double our typical public site size. Also in our fleet business, a national food and beverage company site is operational, and they are using EVgo Optima, our proprietary fleet management software. EVgo and Hertz signed a B2B fleet charging agreement to allow Hertz vehicles to be charged on the EVgo public network between rentals. And PlugShare, the Yelp of the charging world, continues to grow. PlugShare remains the largest community of EV drivers in the world with 7.4 million check-ins since its inception, reaching more than 4.1 million registered users in the third quarter. Harnessing this reach to make charging easier across all networks, in October, EVgo launched Pay with PlugShare across California, allowing users to pay for a charge within their PlugShare app. Now turning to deployment of capital. Let me reemphasize the point I've made to you many times. EVgo's ability to adjust the speed of our growth engine and invest capital to match market circumstances is a great strength of our business model and our management team. I've often compared EVgo to hockey legend Wayne Gretzky, who famously noted that to be successful, he didn't skate to where the puck was, but to where it was going to be. EVgo similarly skates just ahead of the puck incorporating lead times to site and build our infrastructure while anticipating growth in demand and integrating the timing of grants as we pace our build-out. The agility of EVgo's high-performance engine allows us to torque our deployment schedule to optimize shareholder returns while keeping the availability and timing of new capital front of mind. And now regarding new capital. A plethora of non-dilutive government sources of capital are in the mix. First, our DOE loan application is progressing well with the potential for a significant amount of low-cost debt becoming available to EVgo sometime in the latter half of next year. The likelihood and exact timing of this is difficult to predict with precision. Second, tradable tax credits for charging infrastructure through 30c will be available at the start of 2024, and we believe are likely to cover up to 30% of CapEx for a significant portion of EVgo's projects. For the first time, the 30c credit will be eligible to be transferred so that companies like EVgo may monetize the full credit value. As a result, EVgo is forecasting millions of dollars in benefits annually over the coming years. In the past quarter, EVgo's finance and tax teams have worked to prepare EVgo to monetize the credit. We're expecting final rules from the U.S. Department of Treasury in the coming months to provide the certainty needed to finalize our plans for implementation. And third, public funding awards through NEVI and other state programs continue to come EVgo's way albeit roughly 6 to 9 months later than expected and that the market might have hoped due to delays arising from bureaucratic government processes. While delays may be a bit frustrating, there's no doubt that the appropriated funds will indeed be dispersed. And as mentioned above, EVgo can adjust the pace of our build-out to account for those delays. Recall that NEVI has the potential to fund up to 80% of project CapEx. And to date, EVgo is at the top of the leaderboard amongst NEVI grantees, winning over an estimated 20% of the funds announced. Recall that we only apply for grants where projects meet our financial hurdles. Some jurisdictions or state program designs don't meet our criteria. Among NEVI remains a focal point, it's not the only source of public funding available to accelerate EVgo's network expansion. For over a decade, EVgo has partnered with public agencies at the state and local level through funding programs that have propelled our growth and we continue to build upon this experience for not only NEVI, but other grant programs as well. As a reminder of the financial significance of the external funding that complements EVgo's direct investments. These diverse funding sources can typically be stacked. For example, a stall that is part of EVgo's GM program receives a $33,000 CapEx payment. In addition, some locations may also be awarded NEVI or other state or municipal grants, as well as being eligible for a 30c tax credit. In some cases, the funding stack may cover the vast majority of CapEx for a station. Availability of multiple funding sources extends the geographic footprint of stations that pass EVgo's investment hurdles and makes those locations more profitable, a genuine accelerant to EVgo's business. The upshot for our financial picture is this. The diverse sources of nondilutive funding that include OEM funding, grants, and 30c in combination with EVgo's current balance sheet are ample to fuel our growth engine well into 2025, consistent with what we reported previously. And with that, I'd like to introduce you to EVgo's next Chief Executive Officer, Badar Khan.

Thank you, Cathy. Let me first congratulate you on a very successful tenure leading EVgo over the past 6 years. The company has come a long way under your leadership. From a 50-person private company to a public company leader in EV fast charging in over 35 states, serving over 785,000 customers. Under your leadership, EVgo can claim a number of firsts from being the first to deploy a 350-kilowatt charger in 2018 to being the first charging company to be 100% matched with renewable energies in 2019 to having the first integrated Tesla Connector since 2019. I also want to commend you and the team for delivering what you said. Since EVgo has been public, it has met or exceeded initial revenue and EBITDA guidance, and the company is raising revenue and adjusted EBITDA this year. I'm excited to take on the CEO role at EVgo, and I'm very excited for the future. EVgo's mission of mitigating the impact of climate change by accelerating the adoption of electric vehicles through building and growing our fast-charging network is a mission that is very motivating. In just the past year, we have seen a 50% increase in EVs on the roads in the U.S. And while growth rates may be slower or faster in the short term, there is no denying that the market will continue to see exponential growth in the long term with 300,000 DC fast chargers needed by 2030, up from over 30,000 today. I've also been impressed by the focus on discipline that I've observed as a Board member for the past 1.5 years, most clearly evidenced by the rigorous underwriting criteria employed by the company of only building assets that are projected to achieve a double-digit return. It is therefore particularly exciting to take over at this time as we see some key underlying metrics accelerate in recent months, like network throughput growing 4x faster than VIO growth over the past year and overall network utilization over 15% across the entire network during September. And notably for the past 2 quarters growing faster in states outside California. Over the past decade, EVgo has built and continues to refine a very compelling growth engine that we believe has the capacity to site, permit, win grants, build and operate well-located chargers that have a lifetime value far in excess of the annual cost of the growth engine and at returns that are greater than the cost of the capital required for those fast chargers. The fact that utilization at our top stalls is already exceeding the utilization assumed in our underwriting further increases the value of our growth engine. I'm also delighted to see the improvements in customer experience that have been a particular focus over the past year as reflected in the most recent J.D. Power satisfaction scores improving 4 percentage points overall and across all the metrics tracked. I look forward to meeting our customers, partners, vendors, and shareholders in the coming months. I also look forward to sharing more of my thoughts on the future of EVgo on the next earnings call in early 2024. I'll now turn the call over to Olga to share more details on the quarterly performance as well as an update to EVgo's 2023 full year guidance.

Thank you, Badar. EVgo delivered another strong quarter driven by growth in our core retail charging business and eXtend. Revenue in the second quarter was $35.1 million, which was a 234% year-over-year increase. Revenue growth was primarily driven by increased charging revenues and expanded revenue. Retail charging revenue grew from $5.2 million in the third quarter last year to $13.4 million in the third quarter this year, exhibiting a 158% year-over-year increase. Commercial charging revenue grew from $0.7 million in the third quarter last year to $4 million in the third quarter this year, a 496% year-over-year increase. And eXtend revenue grew from $1.5 million in the third quarter last year to $10.5 million in the third quarter this year, exhibiting a 579% year-over-year increase. Adjusted gross margin was 26.4% in the third quarter of 2023 when compared to 19.1% in the third quarter of 2022. The year-over-year change was attributable to improved operating leverage resulting from high utilization. Network throughput has increased by 208% year-over-year, while operational stalls count has increased by 29% over the same time period. That allowed EVgo to amortize network fixed costs over a larger revenue base. Adjusted G&A as a percentage of revenue improved from 230% in Q3 '22 to 67% in Q3 '23, illustrating the leverage EVgo continues to realize from its existing network and ongoing investment in infrastructure, people, and processes on its way to profitability. Reflecting the revenue growth and operating leverage, adjusted EBITDA was negative $14.2 million in Q3 '23 versus negative $22.2 million in Q3 '22. Cash, cash equivalents, and restricted cash was $229 million as of September 30. We added over 240 new stalls to our network during the third quarter, 40 of which are under our pilot program and installed in operation under construction, were over 3,400 as of September 30. Operational stalls at quarter end were approximately 2,700 and include the first 40 operational stalls at 10 locations under our eXtend program with Pilot Flying J and GM. Cash used in operations was $7.3 million in the third quarter, also reflecting the ongoing realization of operating leverage. In Q3, total CapEx was $24 million, including around $21 million in gross CapEx as we continue to execute our build plan. Year-to-date, we have spent $124.1 million on total CapEx, including around $114 million in gross CapEx. EVgo expects to recover approximately 45% of its 2023 vintage CapEx with GM payments of $33,000 per stall accounting for approximately half of that and the remainder recovered through a combination of federal, state, and local grant funds and 30D credits. Between 2022 and 2023 project vintages, EVgo has been awarded approximately $29 million of grants, of which we have collected roughly $10 million. The remainder is expected to be collected in Q4 2023 and 2024. EVgo's gross CapEx to stall is approximately $150,000, driven by rising utility interconnection costs and the requirement to pay prevailing wages for labor through CES with projects receiving grant funding, as Cathy discussed earlier. As part of our Fleet Hub business, we entered into an arrangement allowing us to get access to prime locations in key urban areas in the U.S. through selling and leasing back such properties. In the beginning of the fourth quarter, EVgo sold and leased back two real estate locations resulting in $16.5 million of gross proceeds. As highlighted, EVgo's total throughput this quarter was 3x more compared to last year. We believe several factors are compounding to create this significant uptrend. Foremost is VIO growth, including growth of non-Tesla EVs. EV VIO at the end of the third quarter is estimated at 3 million EVs in the U.S., growing 50% compared to last year. Second, is an increase in the size of the addressable market. Vehicle Miles Traveled or VMT is growing, nearing parity with internal combustion engine vehicles according to recent industry data, reflecting a growing consumer confidence in charging availability wherever they go. More miles traveled equals more charging needed. We also believe that DCFC charging as a percentage of total charging is increasing as EVs have become more affordable to drivers without access to home charging. And with fast charging becoming increasingly available and accessible, more top-up of convenience charging is taking place. Third, market share expansion arising from superior EVgo locations and enhanced customer experience at our site. Fourth, the continued electrification of rideshare fleets is driving usage on the EVgo network, mostly Uber and Lyft drivers. The average rideshare driver travels 3 to 5x more miles than an average commuter and is much more reliant on fast charging infrastructure. Fifth, higher charge rates of new EVs enable more throughput in the same amount of time. And finally, newer EVs hitting the market are bigger and hence have lower efficiency. That is, they require more modular hours to go the same distance as smaller EVs. EVgo categorizes traffic on our public network into three categories: Retail, which is comprised of individual noncommercial EV drivers; Commercial off-lease, which includes rideshare drivers and autonomous vehicles; and OEM charging revenue, which is derived from charging credit programs from the automakers. Retail throughput, the first of those three categories, was 2.5x greater than the third quarter of 2022. This increase is driven by both more customers on the EVgo network and high usage per customer, reflecting the trends discussed earlier. We added over 106,000 new customer accounts this quarter, bringing the total to over 785,000. Average monthly kilowatt hours per active customer is up 66% in January 2023. EVgo membership programs are delivering value to our frequent customers. Over 20% of our retail charging revenue is derived from EV drivers on the membership or subscription plan. EVgo now has over 30 markets that delivered double-digit utilization in the third quarter. It is truly a coast-to-coast phenomenon with major markets such as Dallas, Houston, Miami, Detroit, Atlanta, Raleigh, Chicago, and Philadelphia joining our historically strong California markets of L.A., San Diego, and San Francisco. EVgo fleet traffic, which accounts for over 20% of our throughput, continued to gain momentum this quarter, growing fivefold year-over-year. Uber and Lyft are our largest rideshare partners with Uber alone accounting for 2 gigawatt hours in October 2023. We estimate that EVgo powers up to 50% of our rideshare drivers charging needs. With EV adoption on the rise, continued leadership in the attractiveness of our locations, and a relentless focus on the customer experience, we expect EVgo to continue this quarter-on-quarter growth trajectory in the foreseeable future, building their financially sustainable business model and superior profitability. Moving on to our full year 2023 guidance, EVgo is raising its full year revenue guidance to a range of $148 million to $158 million. And EVgo is raising its full year adjusted EBITDA guidance to a range of negative $66 million to negative $62 million. We expect to have a total of 3,400 to 3,700 DC fast charging stations installed in operational under construction, including EVgo eXtend by the end of 2023. And with that, we'll turn it over to operator for questions.

Your first question comes from the line of Chris Dendrinos with RBC.

Great. Congratulations on the fantastic quarter. To start, the throughput growth rate is accelerating faster than EV VIO, as you noted, and you highlighted some impressive increases in utilization rates as well, mentioning a few reasons driving that. Based on the guidance increase, it seems demand is potentially stronger than your internal expectations. Can you comment on how you're viewing demand growth going forward and how that influences your development plan and thought process? Is there a desire to possibly accelerate installations in certain locations where utilization rates are particularly strong?

Yes, because we've got a pretty sophisticated network planning tool that takes into account all of these trends down to the census block level. So yes, we're thrilled overall about the kinds of compounding factors that are increasing utilization, and we'll continue to be able to sort of accelerate in particular locations where we see that demand growing more quickly. And remember, we've still got tons of headroom on the existing network. So what we're doing is we plan the future builds is there’s a 12- to 18-month lead time for when those stations go live. So we've got lots of time as we're thinking about where those market trends are going to take hold most. So again, the beauty of our model is that it's a disaggregated capital investment in particular locations that we can ramp up or down based on sophisticated tools.

Yes. And maybe just to add on that, since network planning sits within my purview, it's an iterative tool. So every moment, every month of new data gets fed back into the network plan and it feeds into the future optimization. So this recent increase is just like before when we didn't observe increases, but yet we still observed as learning elements of that. They always go back to the network plan and ensure that network plan is based on the most recent trends and most recent observable utilization and other factors we see, including sales, etc. So there's nothing new here per se, our method has always been as such.

Got it. I would like to follow up on the demand trend, specifically regarding chargers. The discussions around electric vehicle demand have been negative, partly due to the perceived lack of access to charging infrastructure. One might expect this to encourage manufacturers to speed up their investments in EV infrastructure to alleviate these issues. This could present an opportunity for both of you in the extended line of business as well as partnerships overall. Can you share any insights about the discussions you’re having with potential manufacturing partners? Is there an increased sense of urgency on their part to accelerate installations? Any updates on this?

We have strong relationships with all the leading OEMs, and they are committed to investing over $1 trillion in the electrification of transportation. They are optimistic about this sector, with projections of more than 30 million EVs on the road in America by 2030. We are continuing to work closely with them, including new partnerships with Stellantis and Honda. We are excited about developing convenient and reliable fast charging infrastructure to meet the growing demand for fast charging. Overall, from our perspective, everything looks positive.

And Cathy, congratulations on the solid quarter and ending your tenure with a very strong third quarter here. And Badar, welcome. I look forward to working with you.

Thanks, James.

So I think one of the things I wanted to just touch on is we've got the NEVI Program, which is increasing awareness. We've got a lot of states that are trying to ramp up their adoption and putting more charges. Are you starting to see the ability to accelerate your placement of chargers? I mean, I know you guys have a ton of sites that are already specced and are ready to go, but getting permits and working with utilities has always been a kind of delay. Are you starting to see that ease somewhat?

Yes, that's a great question. The sector is maturing. When I started six years ago, very few local governments had received permits to build fast charging stations, and now almost all of them are either seeing or beginning to see them. The permitting process is getting easier, and utilities are becoming more familiar with it. The biggest challenge in the building process is still with the utilities, not due to a lack of awareness, but because there is still a bottleneck on transformers for service upgrades. To address this, we have expanded our pipeline. We have identified 10,000 prospective locations that would be profitable for EVgo. The key for us is to pace the deployment of these locations according to when the NEVI funds become available and when the utilities can incorporate these projects into their planning. We've become more sophisticated in collaborating to make this happen. Additionally, when I first joined EVgo, most locations had only one or two chargers. Now, our standard is six stalls or more, and we are working with GM to create flagship stations with 20 stalls each. There is now a demand for larger charging locations in shopping centers and grocery store parking lots, and we aim to deliver on that. It's an exciting time as the market is maturing and demand is increasing.

Right. Okay. Got it. And then maybe just a quick follow-up for me. On the depot sites, you mentioned you're building a second one. How large is a depot site for you at this point how many stalls?

Again, it depends on the particular location. Somewhere between 18 and 30 kind of typically is what we're looking at for these sites.

Similarly, Cathy, good luck, and next especially looking forward to working with you. First question is on the initial disclosure. So Pennsylvania actually had some disclosure on the NEVI awards. And it's not comprehensive, but some of the information would point to EVgo and other project costs being materially higher than Teslas. It looks like around double. I'm not sure if this is apples-to-apples. But I guess can you break down some of the cost elements and how you're thinking about hardware construction installation, I guess, in order to be more competitive across these sort of transitions into the new year?

Bill, I think you're correct. It may not be a direct comparison. Olga, perhaps you could share our breakdown of the CapEx cost structure?

So our CapEx right now is $150,000 on average per stall. That is inclusive of everything. All the types of equipment, all the labor, all the utility work so for some sites you have a lot, for some sites you will have de minimis, but on average, right, there will be costs associated with that. So roughly 40% of it is equipment, 60% of it is labor. We have seen Tesla numbers. We believe that, for example, don't include utility components, and it's hard for us to comment what portion of labor is included on an equipment-to-equipment basis to equipment. It's challenging to make an apples-to-apples comparison with others because we know utility is missing, but we don't know what else is missing to do a full comparison.

Let's take a step back for a moment, Bill. It's clear that every forward-thinking business is focused on reducing material costs and driving innovation. This is why we're particularly enthusiastic about the recently announced prefab skid that will lower expenses and save significant time. This provides both labor and equipment advantages. There are many other initiatives in our pipeline that we will share, and I believe you'll hear more about them from Badar and Olga next year. We're extremely excited about our innovation strategy aimed at staying competitive.

That's helpful. And I guess trying to think about the share, first of all, this great network throughput drove here, utilization trends are turning higher. But if we think about the model working long term, it's going to be about installing more stalls and kind of letting this flywheel take effect. So I guess if we think about next year and beyond, how should we think about your share of ports being installed. Does EVgo going to expand in 2024 and 2025 faster than the market in order to drive this flywheel? And I guess, really, ultimately, how dependent on this growth plan in the next year will be dependent on policy support or DOE loans or other funding?

Yes. To begin with, we view our market share primarily as a percentage of the total kilowatt hours dispensed by DC fast chargers. In our network planning, whether it's for the short or long term, we focus on optimizing that market share rather than simply maximizing the number of charging ports. Our aim is not to install as many ports as possible but to strategically place them in high-utilization areas to enhance the profitability of each port we invest in. Therefore, our approach will be informed by that focus, rather than the deployment rates of others. I can't specifically predict who will deploy faster or slower. However, as noted in our recent filings, we are experiencing faster throughput growth than VIO. Our projections indicate that we have been gaining market share in the DC fast charging segment. The DC fast charging sector overall is also increasing its market share compared to Level 2 charging. These metrics are crucial to us because they correlate directly with profitability. We don't prioritize the number of ports if they are underutilized, as that does not align with our business model. Is that clear? From that perspective, yes. EVgo's business is expected to be financed through a combination of cash on the balance sheet, funding sources, including state and federal programs, as well as partner funds. For 2023, approximately 45% of the capital expenditure for assets acquired that year will be financed through these sources, and we expect similar ratios going forward, which has already been included in the network plan. We also mentioned that we are in the process of planning for Department of Energy loans, which provide a well-priced, nondilutive source of capital that can support our network plan through 2025, 2026, and beyond. We are continuously considering different funds and sources, and it will always involve a mix of cash on the balance sheet, nondilutive financing sources, and various grant programs.

I wanted to discuss gross margins in more detail. I understand that gross margins declined this quarter due to lower equipment sales. Could you provide insights on the current gross margins from selling kilowatts, and what potential they have moving forward? Additionally, if we disregard equipment sales, what level of network throughput would EVgo need to achieve to reach adjusted EBITDA positivity?

Let me begin with gross margin. You are looking at GAAP gross margin, which includes various depreciation and amortization, resulting in significant noncash expenses. In our business management, we focus on adjusted gross margin. This is the figure we report, and we experienced an expansion this quarter compared to last quarter and the same quarter last year. We reported 26.4%, driven by higher utilization of our network, which enhances our leverage effect and allows us to amortize some of our net fixed costs. While GAAP gross margin is lower than last quarter due to a revenue mix, it's important to note that adjusted gross margin provides a more accurate measure of our business progress. It remains consistent and is reported every quarter. Regarding adjusted EBITDA neutrality, we are clearly approaching it, as indicated by recent trends. Comparing this quarter to the same quarter last year, our G&A as a percentage of revenue has significantly decreased from 230% to 67%. This shows that we are on the path to profitability. While I cannot specify when exactly this will happen, it is expected within the next couple of years, and we will update the market in the coming months. That's all I can share for now.

Okay. At a high level, is this the correct way to understand the business? You currently have equipment partners, and as this develops in the coming years, it will focus on the profit margins from electricity sales to drivers. Just to clarify, you plan to provide more details about this in the first half of next year or at a later date?

Yes. So the... It's a combination of factors. So electricity margin is absolutely a factor and electricity margin is dependent and our pricing is dependent on the composition of network locations because electricity costs are widely different across the country. It's dependent on our efforts on getting ourselves on EV rates, which are usually more favorable. But then there are other factors. You have always energy costs, but you have non-energy costs built into our cost of goods sold and overall network costs such as maintenance, AT&T, and Verizon connectivity charges, some software charges, call center and so on and so forth. So those items are semi-fixed in nature and our ability to cut costs on a per stall basis is what is driving the margin or maintaining the costs that would be driving that margin as well. So it's not all just about energy costs; it's not all about the price. And you have some other costs. So the right way to think about it is looking at energy margins, looking at pricing, but also making sure that we, as a business, are able to optimize for those semi-fixed costs as well on the network. That would inform the margin. So the margin right now, 26.4% adjusted gross margin basis. We had 15% utilization this quarter. The utilization is expected to go up as we all hope. So that margin, you should expect to see that number expanding with high utilization on the network.

Good morning, everyone. Congrats on a strong quarter. Cathy, I echo everyone's thoughts, you will be missed. I wish you all the best in your future endeavors, and we'll certainly miss your EV industry updates in the earnings call. But we are looking forward to working with you as well. Cathy, maybe a question for you. We've seen some of the large OEMs out there: Ford, Mercedes, Tesla, even to some degree, talk about this potential slowdown in the demand for EVs at least in the near term. Curious just maybe to get your thoughts on that and how that might translate into the charging industry and particularly into EVgo.

Yes. Thanks, Andres. And I'm just talking to you on these quarterly calls as well. So yes, what's fascinating is that the slowdown is relative to a giant that is talked about as a kind of modulated slowdown from some vertical growth. So we're still looking at them. I mean, by all industry accounts, 40% to 60% growth next year in a slower market. And for any other sector that would be viewed as like, 'Oh, my goodness, gracious, it's so fast. We're going from 3 million EVs today to 5 million to 6 million by the end of 2024, and up to 35 million by 2030.' So it remains a very fast-growing sector. The modulation of that is, again, we can lean in a little bit more to go a little bit more quickly in deploying stations more quickly if we need to, and we can pull back just a little bit if it's going to slow down just a little bit. I mean, truly, I actually do love the Gretzky metaphor. And so for us, it's still like it really is up and to the right. And whether 2024 is a little bit slower, all of the OEMs are building capacity to make hundreds of models of EVs. There's no denying that. So what happens in 2024 if because interest rates are high and overall EV sort of sales are down, I guess it just doesn't terribly worry us. The macro trend is still really, really strong and as evidenced by what we saw on the utilization trends right now, right? So to be a leading provider of essential infrastructure for an increasingly hungry set of people that need fast charging is a fantastic place to be.

Got it. That's very helpful, and I appreciate it. As a follow-up, I have a two-part question. Regarding NEVI, I think we can all agree that the deployment of the funds has been slower than we would prefer. Can you remind us of your run rate with the current liquidity on hand? In the past, you mentioned that it's sufficient to fund the business into 2025, so I wanted to confirm that. Additionally, with inflation and higher interest rates, I'd like to hear your thoughts on how you expect energy ASPs to fluctuate next year. Should we anticipate a significant increase in that cost? I'm just curious about your perspective.

Yes, we are confirming that with our current cash on the balance sheet and the combination of the funding sources we've previously discussed, including secured grants and funds that we are about to collect, we are well financed through 2025. We do not anticipate needing any additional capital until then. Could you please repeat the second question?

Yes. The second part was just around the... energy stuff, yes.

The interest rates are not related to energy costs. We are customers of utilities and have a wide distribution across the country. This means we are not affected by wholesale volatility or tied to any specific utility because of our distribution model. Utilities may pass on some costs to their customers, but due to our network's distributed nature, this does not occur uniformly. It happens in different areas of the network. We continuously monitor this situation and use advanced forecasting methods to predict which parts of the network will experience cost increases or fluctuations. Additionally, we want to emphasize that we have the flexibility to pass these increases onto our customers since we are not regulated on pricing. Our pricing strategy is sophisticated and includes time-of-use rates, location-based pricing, and subscription models. This allows us to charge more to price-sensitive customers while also providing access during off-peak times. Therefore, even if we experience cost increases, our margins remain intact because we can quickly adjust our pricing for consumers as needed.

Congrats Cathy and Badar, to both. I was hoping we can maybe get a little more color on just CapEx trajectory from here? Is it fair to assume that spend could actually decelerate in '24, just to preserve cash and considering utilization rates are quite high across some of your portfolio? Would love to get a sense of the CapEx trajectory and then how much is the long lead times on transformers really impacting you right now? And when do you think it could become a bigger problem?

Yes. We'll discuss our plans for 2024 on the next call. I don't anticipate any deceleration, but we will cover various 2024 metrics in a few months.

Yes, let me add a comment about transformers. The issue with transformers isn't hindering our progress at all. We recognize that transformers take a significant amount of time, so we plan accordingly. We're actively engaging with utilities and have insight into which ones have placed orders for transformers. As I previously mentioned, we meet with every utility involved in our construction projects and provide them with a 12 to 24-month plan, allowing them to place orders for any necessary service upgrades, which many locations now require. Some utilities will receive their equipment faster than others, but our team, led by Dennis Kish, our COO, is highly adaptable. We can adjust our teams to start projects as utilities are prepared to install their equipment. Thus, we have a clear understanding of our construction plans, and this isn't a bottleneck; it simply means we may not activate as many projects as quickly. A couple of years ago, I anticipated we could reduce the timeline to six months from initiation to activation. We're not there yet, and it may take a few more years, but we've adjusted our planning accordingly.

Okay, that's helpful. As a follow-up, could you provide an update on demand charge reform? Specifically, are there any developments in new jurisdictions and progress in areas outside of California? I'll leave it at that.

We have a strong team that handles our advocacy and regulatory interventions related to utilities. I don't recall the exact number of jurisdictions where we're active, but it's between six and twelve. We're working on demand charge reform and the extension of EV rates that might be ending soon, among other issues, and these efforts extend beyond California. I can't remember the specifics offhand, but Gabe, I'm happy to follow up and provide details about the ongoing rate cases.

There are no further questions at this time. I'd like to hand things back over to Cathy Zoi for closing remarks.

Thank you for attending, everyone. This is our quarter's financial and business update. We all appreciate your interest in EVgo. And while this is my final earnings call with you, I remain financially, intellectually, and emotionally invested in EVgo's success, and I look forward to witnessing and celebrating the progress under Badar's leadership. Thank you so much.